Reaping Resources

Based on the investment principle that one year’s winner cannot be the next year’s – and vice versa – one sector of the JSE stands out from the pack as the most likely winner in 2013: Resources. With the All Share index up 17%, Industrials up 33%, and Financials up 29%, the Resources sector is down 8,4%, and with good reason most people would say.

Few analysts would come out and say it’s a sure thing. However, they are saying that for the braver soul, perhaps the time has come to start rebalancing in favour of the sector.

Renewed energy

Humphrey Price, senior portfolio manager at Sanlam Private Investments (SPI), cautions that he wouldn’t recommend Resources to his retired clientele but its valuations are certainly at the lower end of their historic scale, and are trading at a discount to the overall index.

“But if they’re cheap, they’re cheap for a reason based on the weak investment case of mining shares. These include labour issues, spiraling costs of production, the perceived lack of investor friendliness of our government, and finally commodity prices are high and investors are concerned that the next move will be a fall in prices,” says Price.

Suraj Sookdhew, RMB Private Bank portfolio manager, claims there’s a good chance the Resources sector will be this year’s winner, “but it comes with its challenges.”

“There are global economic issues such as slow growth in developed markets and a slowdown in Chinese GDP to around 8% from averages of over 10% recently,” he says. “However, when investing you need to be forward looking, and what we see is confidence picking up in the US, manufacturing data improving in China and even the Eurozone muddling along. Given the recent underperformance of the Resources sector, we would probably see some rotation out of the defensive Industrials into Resources,” he adds.

“We like the energy story within Resources, and currently Sasol is offering a good dividend yield and price earnings multiple around eight times. Its production seems set to double over the next five years given the recent announcement of a new gas-to-liquid plant in the US. It is also a good rand hedge.

Supporting this stock, we see oil remaining in the $100 to $120 band for the foreseeable future, given the current geopolitical tensions in the Middle East. Sasol is not without risks. The new project in the US is projected to cost around $20 billion and any cost and execution over-runs will be negative for the company as evidenced by the cost over-runs at Anglo American’s Minas Rio project.

“We also like the energy play within BHP Billiton while Anglo American is more of a recovery stock as it still has some issues to sort out,” says Sookdhew.

Platinum deficit

Price is in full agreement on Sasol: “Lower gas prices must translate into better margins. On a PE of eight times and a dividend yield of 5%, this conservatively run company will yield steady results.”

On Impala Platinum, he says: “The mining industry has experienced its pain and will emerge stronger. With CEO Terence Goodlace at the helm, expect improvements in refining capacity. In addition, longer-term decent vehicle sales should boost the demand for platinum. Globally, a rebound in rand platinum prices could filter through to better profits and dividends.”

Emile Fourie, SPI portfolio manager, adds: “South Africa supplies 75% of the world’s mined platinum; Amplats produces half of South Africa’s platinum. The normal growth rate in demand has averaged 3,2% a year since 1975. However, growth slowed to 0,5% a year over the past five years.

Platinum has been oversupplied since 2009. Analysts estimate the platinum market moved into a deficit position because of extended strikes over the past few months; the market should remain in deficit during 2013.

“Amplats currently trades at 1,7 times book value. Historically, investors paid large premiums above book value during market deficits (1999-2005 and 2007-2008). Back then Amplats traded at a P/BV above 8, making the current 1,7 look very attractive.”

Gold tracks global liquidity

While there are fears that the commodities cycle has peaked, few analysts believe that either gold or oil are about to drop.

What has supported the gold price is the fact that it now tracks global liquidity rather than the US dollar. It is widely expected that current economic conditions support a continuation of the sharp rise in global liquidity for the next two to three years until at least 2015, through mechanisms such as quantitative easing and low interest rates.

In this scenario, what then is a fair value for gold? As the market has come to understand the new correlation of gold to global liquidity, there has been an increasingly aggressive response by gold to consecutive global liquidity issues (averages 2011: $1 574; 2012: $1 704) which should underpin an average value for 2013 of $1 850. Thereafter, the price should consolidate as interest rates start to rise.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

Harnessing the positive effects of enterprise is easier than you think. Investors can have beneficial effects on a number of social, environmental and entrepreneurial issues with sound impact investing strategies. “Around the world, inspiring pioneers are demonstrating that business and investment can be a morally legitimate and economically effective way to tackle social challenges,” writes Anthony Bugg-Levine for The Huffington Post.

Investing in clean, renewable energy or purchasing private stock in nonprofits aimed at providing education to lower income areas are just a few examples of socially responsible investments.

By approaching impact investing intelligently without pursuing returns ravenously, investors can find considerable profitability while contributing to a greater good. In fact, a 2013 study conducted by GIIN and JP Morgan found that 90% of impact investors reported that they were meeting or exceeding their financial projections.

1. Develop a clear plan

Developing a successful approach to impact investing means taking the time to develop a clear plan. Exploring your options, researching the opportunities available to you, and weighing those options carefully will help you remain realistic about the risks and the rewards, both financial and social, of your investments.

It’s important to answer questions like the ones below before making any impact investing decision:

What kind of impact do you wish to make?

Which is more important to you: your finance goals or your impact goals?

What do you want your risk tolerance to be?

What vehicles will you use to achieve your goals?

Do you want to directly invest or invest indirectly?

Questions like these will help guide you and root you to a slow and steady plan of action.

2. Thoroughly investigate tradeoffs

Impact investing can be a mixed bag. Impact investing funds have grown in number, but it is uncertain if their profitability has risen with it. “In the last 10 to 15 years, the number of social impact funds has grown from a handful to several hundred,” explains a Wharton article examining impact investing.

“This growth has occurred despite the widespread assumption that in making investments intended to achieve social objectives, investors are accepting more modest financial returns than they would if they were to choose investments solely on the basis of their return potential.”

The vast majority of impact investment funds are private equity funds. These funds don’t make their returns public, so you may hesitate to place your trust in them without some evidence of profitability. Additionally, you’ll need to understand the tradeoffs concomitant with impact investing, such a loss of liquidity and the possibility of diminishing returns.

3. Concentrate on fixed-income investments to lower risk

If investing in private equity funds proves too risky for you, then you may want to consider pouring some of your resources into fixed income instruments, such as municipal bonds. These bonds finance important and impactful projects, like building hospitals and affordable housing, while providing you with steady interest payments. “Municipal issuers are typically mission-driven; that is, their projects tend to address environmental, social and community development concerns,” says Goldman Sachs research analyst Michael Kashani.

4. Stay realistic

It can hard to juggle both a mission to have a positive impact and a desire to make beneficial social changes. Trying to accomplish both goals requires a metered approach, one with sustained patience and dedication to staying rooted in realistic expectations. You may feel tempted to invest in an array of pressing issues and to make immediate positive change. Overextending yourself can frustrate the process and, in the worst case, preclude you from continuing to invest in important, socially conscious projects and companies.

Managing Director of Integrated Performance at Uhuru Capital Management, Jed Emerson, explained impact investing’s two-fold mission to contribute to social good and to create wealth as a cohesive – rather than dichotomous – endeavour, saying, “There is an idea that values are divided between the financial and the societal, but this is a fundamentally wrong way to view how we create value. Value is whole. The world is not divided into corporate bad guys and social heroes.”

Indeed, impact investing, while certainly challenging, can be a source of both fulfillment and wealth. Developing a clear plan and staying realistic will help guide you through the process. You’ll need to understand tradeoffs to ensure you’re two goals don’t end up competing against each other. It’s even possible to lower risk by investing in fixed-income options, like municipal bonds.

Ultimately, impact invest is a personal affair. Your goals will be tailored to what you deem important to you. Research your options, consult financial expertsbefore embarking on your next investing journey, and remember to keep in mind the impact you wish to have so you won’t get discouraged when you encounter obstacles. Impact investing isn’t for everyone, to be sure, but with a few investing strategies to assist you and a bit of patience, you should be able to accomplish your goals.

11 Things You Need To Know About Bitcoin

11 Bits about Bitcoin

Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.

Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.

The birth of Bitcoin

Starting point at 2008

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

An elusive creator

No one really knows

The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it. In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim. Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.

Very expensive pizza

We wonder what was on the pizza?

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of Aug. 28, 2017, 10,000 bitcoins are worth about $43 million.

You can spend bitcoins

How to spend your bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff. The largest businesses to accept the cryptocurrency include Overstock.com, Expedia, Newegg and Dish.

Federal Bureau of Bitcoin

The banning of Bitcoins

At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.

A mountain-sized setback

Mt. Gox

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

The billionaires’ takes

Warren Buffett

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. “Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”

Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin: “You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”

Wealthy twins and a smart teen

Cameron and Tyler Winklevoss

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had). They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.

Celebrities want in

Ashton Kutcher

Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.

Support from a big financial institution

Fidelity Investments

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdingsheld through digital wallet provider Coinbase.

“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

A hard fork

Bitcoin Cash

On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.

Here’s how Rob Marvin of PCMag explains the situation:

“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.” Bitcoin Cash allows larger blocks of currency and more transactions per second.

9 Warren Buffett Quotes That Will Teach You More Than Just Investing

Check out these nine quotes on time, success, mindset and more

There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.

From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.

However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping $77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates). There’s much to learn from Buffett too.